## 20.6Solved Problem

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The United States has a long-standing policy of trade protection in the sugar industry. As part of the sugar program, the United States Department of Agriculture limits imports to less than 15% of domestic consumption. The policy is controversial, with producers of sodas, candy bars, and other sweetened snacks pitted against sugar growers as well as some public health advocates.

Using the following hypothetical U.S. domestic demand and supply schedule for sugar, determine how many tons of sugar the United States produces in autarky and the equilibrium price per ton.

 Price of sugar (\$ per metric ton) Quantity of sugar demanded (millions of tons) Quantity of sugar supplied (millions of tons) \$650 4 12 600 6 10 550 8 8 500 10 6 450 12 4 400 14 2 350 16 0

If the world price of sugar is \$500 per ton, will the United States import or export sugar? How much will they import if there were no import restrictions?

STEP | 1 In autarky, how many tons of sugar does the United States produce, and at what price are they bought and sold?Review page 579.

In autarky, the United States produces 8 million tons of sugar, and sugar is sold at \$550 per metric ton. This is the quantity and price at which “Quantity of sugar demanded” equals “Quantity of sugar supplied” in the table. At this price and production level, the market is in equilibrium.

STEP | 2 If the world price of sugar is \$500 per ton, will the United States import or export sugar?Review pages 579–581.

As shown in Figure 20-6, if the world price is less than the autarky price, then a country will import. In this case, the world price is \$500 per ton, and as determined in step 1, the autarky price is \$550 per ton, so the United States will import sugar.

STEP | 3 Determine how much will be imported or exported.Review pages 579–581.

Domestic demand at a world price of \$500 per ton is 10 million tons, and domestic supply at a world price of \$500 per ton is 6 million tons. Since there is a shortage of 4 million tons, the United States will import 4 million tons of sugar if there are no import restrictions.

But in reality, because of the sugar program the United States could not import the required amount of sugar, resulting in higher prices.